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Will News Corp’s UK Problem Become Its US Problem?

Our big story of the week comes from across the pond, in London Town where, for many months, regulators have been examining the business practices of one of the world’s largest media empires.

Last week, Rupert Murdoch, the head of News Corporation, testified before a judicial panel about alleged phone hacking and police corruption by News of the World employees. Murdoch’s big news amounted to accusations that at least one former employee presided over a “cover-up” of phone hacking and other dubious practices at The News of the World tabloid. [Without naming names, Murdoch insinuated blame lies with the now-defunct newspaper’s longtime chief lawyer, Tom Crone and Colin Myler, its final editor. Crone denies the charges.]

Murdoch said he had been “shielded” from the truth by his obfuscating employees. The targets of his disapproval included The News of the World itself and people he said impeded the phone hacking investigation. Robert Jay, chief lawyer for the inquiry, read aloud assessments of Murdoch’s hands-on newspaper in an effort to determine how involved Murdoch was in the paper’s news operations – not very, Murdoch answered.

But Murdoch said that as the newspaper’s proprietor, he bore ultimate responsibility for the hacking scandal that spurred him to shut The News of the World down last summer. He said he is guilty of “not paying enough attention to The News of the World at any time I was in charge of it.” As a top executive, Murdock made startling admissions:

how a common way to secure a subject’s cooperation, in his view, is for a “journalist to do a favor in return for a favor back,”

he shut the Sunday tabloid because he “panicked,”

his son James had been “pretty inexperienced” when he signed a record settlement with one hacking victim, and

he had “failed” to get to the bottom of the scandal.

But behind the theatre lay serious questions about the impact of this week’s revelations on far bigger business interests than Fleet Street’s disgraced tabloids. Asked whether he ever told his newspaper editors to pursue stories which promoted his other business interests, Rupert Murdoch was quick with his reply: “I don’t have any other business interests.” The remark might have surprised investors in News Corp, a $48 billion collection of television channels and satellite broadcasters in which newspapers now play a marginal financial role. Print went from 90 percent of News Corp’s operating income in 1980 to 11 percent in 2010.

Everyone, it would seem would agree with Murdoch’s own assessment that the saga is a lasting blot on his reputation, a vital commercial asset.

The revelations have led to British regulator Ofcom escalating a probe into whether British Sky Broadcasting – and officers and owners including James Murdoch and News Corp – were “fit and proper” holders of UK broadcasting licenses. At worst, the regulator could force News Corp to sell all or part of its 39.1 per cent stake in the satellite broadcaster, now worth more than $7 billion. This after News Corp tried so hard to acquire the remaining stake of BSkyB, a move that now seems all but impossible after e-mails surfaced suggesting that a News Corporation lobbyist and a British culture minister had conspired to get the deal approved. [UK Prime Minister David Cameron said there was no agreement between him and Rupert Murdoch, or his son James Murdoch, to support News Corp.'s business interests in return for the media company's support of Cameron's Conservative Party.] The failed deal highlights a period of caution and relative stagnation at the $50 billion media empire known for its risk-taking and forward-thinking acquisitions.

On May 1, members of the UK Parliament released a report concluding that Rupert Murdoch is not a fit person to exercise stewardship of a major international company after failing to investigate phone hacking at the News of the World and overseeing a culture of “willful blindness.” “News Corp exhibited wilful blindness, for which the company’s directors – including Rupert Murdoch and James Murdoch – should ultimately be prepared to take responsibility,” the MPs wrote, adding that the committee had concluded “Rupert Murdoch is not a fit person to exercise the stewardship of a major international company.” The Parliamentary committee said that News Corp and its UK newspaper arm, News International, failed to mount a proper inquiry into phone hacking at its Sunday tabloid after a reporter there was jailed for hacking mobile phones in 2007, and when evidence emerged the following year that the practice had been more widespread. In another finding endorsed by all members of the committee, the report also accused Tom Crone, News of the World’s legal manager, Colin Myler, the paper’s last editor, and Les Hinton, News International’s former executive chairman, of misleading the committee, potentially exposing them to contempt of Parliament charges.

In a message to News Corp employees, Murdoch said the findings were "difficult to read" -- but afforded "an opportunity to reflect upon the mistakes we have made. News Corp. issued a statement acknowledging the "hard truths" that emerged from the committee's investigation: that it had been "too slow and too defensive; and that some of our employees misled the Select Committee in 2009." On May 2, News Corp’s board of directors released a statement announcing its “full confidence in Rupert Murdoch's fitness and support for his continuing to lead News Corporation into the future as its Chairman and CEO.” The board based its confidence on his ongoing performance as Chairman and CEO, and his demonstrated resolve to address the mistakes of the company identified in the report.

And it is with the release of the report that the story really starts to impact media ownership regulation in the US. News Corp owns and operates 27 broadcast television stations in the US. Writing for the Columbia Journalism Review, Ryan Chittum highlighted the claim of Murdoch’s “willful blindness,” a US legal term for what you might call implausible deniability. It became implausible when it was clear long ago that there were serious problems that Murdoch, if he had wanted to, would have cleaned up. Instead, Murdoch cultivated a culture of obfuscation and coverup -- one that hubristically, but not unrealistically, assumed that his power would be enough to ride out the turbulence. The scary thing is how close the bet on coverup came to winning. News Corp.’s extensive corruption of the British police system would have buried the scandal but for the heroic work of a small handful of folks like The Guardian’s Nick Davies, MP Tom Watson, and victims’ attorney Mark Lewis.

Writing for The Huffington Post, Timothy Karr of Free Press says the consequences for News Corp depend on US politicians' willingness to face down one of the most powerful media figures of our generation. Congressional hearings in the US, Karr writes, could bring to light even more misdeeds by a company that thinks itself too big to fail -- or be held accountable before the law.